Article

Note: Cereal Investment Co. (Buyer) purchased a quantity of sugar under a contract providing for "fob stowed" from ED&F Man Sugar Ltd. (Seller), and which required Buyer to provide the vessel for shipment. The contract, which was subject to the rules of the Refined Sugar Association (RSA), stated, "one vessel only presenting Period: October 2006 Shipment at Buyer s [sic] Option, with 10 days preadvise of vessel arrival". It also required Buyer to provide a "Letter of Credit for entire contractual tonnage to be opened in fully workable form in favour of [Seller]...".

RSA Rule 7 provided:

In cases of FAS, FOB and FOB Stowed, contracts, the Seller shall have the sugar ready to be delivered to the Buyer at any time within the contract delivery period. The Buyer has the option of taking delivery of the contract quantity in one or more lots during the contract delivery period...

The Buyer having given reasonable notice, shall be entitled to call for delivery of the sugar between the first and last working day inclusive of the contract delivery period. The Buyer must give notice ... to the Seller of the name/s of the vessel/s on which the sugar is to be shipped and the vessel/s expected time of arrival at the loadport and the tonnage to be loaded...

If the vessel/s has presented herself in readiness to load within the contract delivery period, and loading has not been completed by the last day of the period, the Seller shall be bound to deliver and the Buyer bound to accept delivery of the balance of the cargo or parcel up to the contract quantity...

Buyer interpreted these terms to mean that "loading had to be complete by the end of the month specified in the contract," while Seller interpreted the contract to mean that Buyer would only have to present the vessel for shipping the sugar by the end of October so that "if [Buyer] presented their vessel at the end of October the bill of lading date would be in November."

Payment was to be via an LC issued in favor of Seller, although Seller was not consulted regarding its terms. The LC required Seller/Beneficiary to present a bill of lading no later than 31 October 2006, a date to which Seller/Beneficiary did not consent. When Seller/Beneficiary received the LC, it realized the LC differed from its interpretation of the contract terms and that the date might prevent payment in light of the congestion at the port, Santos, so it requested Buyer/Applicant amend the LC. Buyer/ Applicant assured Seller/Beneficiary it would extend the LC if needed, urged Seller/Beneficiary to trust it, and demanded that Seller/Beneficiary withdraw its request for amendment. However, Seller/Beneficiary did not withdraw its request and Buyer/Applicant subsequently terminated the contract, claiming that Seller/Beneficiary had repudiated, and sought arbitration in accordance with the RSA Rules. The arbitral panel found that the LC "was not in accordance with the terms of the contract and that [Buyer/Applicant's] claim accordingly failed." On appeal, Queen's Bench Division, Commercial Court, Walker, J., dismissed Buyer/Applicant's appeal. The appellate court stated that the issue was whether the proffered LC was workable under the contract when the contract provides for FOB and a shipment period during which the vessel must be present and loading may continue to an uncertain date under applicable rules.

The appellate court ruled that the contract required Buyer/Applicant to present the vessel for shipment by the end of October, making the LC's deadline inconsistent with the contract.

[JEB/dep]

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